An investment fund is a form of collective investment of money pooled from many investors in stocks, bonds, and other securities or assets. A fund manager manages the fund and trades the fund's underlying securities, realizing capital gains or losses, and collects any dividend or interest income. Investment proceeds may then be passed along to the individual investors. Example investment funds include mutual funds and hedge funds. An investment fund may be associated with specific trading or investment strategies or a specific geographical area.
Structured investment products are synthetic investment instruments created to meet specific financial needs. A structured product is generally a pre-packaged investment strategy based on derivatives, for example, options and swaps, and may include protection of principal if held to maturity. In addition, the structured product may also provide a return based on a pre-determined formula. For example, a structured investment product may provide a return equal to a pre-determined index and up to a maximum limit, while the principal is protected.
Tranches refers to one of several related securities offered as part of the same deal. Tranches may be referred to as “classes” of investments identified by letter (e.g., the Class A, Class B, and Class C securities). The underlying investment(s) of the tranches is also referred to herein as a “reference portfolio.”
All the tranches together make up the deal's capital structure. Returns are generally paid sequentially from the most senior (usually Senior Secured) to most subordinate (usually unsecured). A return of the reference portfolio at which a tranche becomes exposed to profit or loss on the investment is referred to herein as “attachment,” and a return of the reference portfolio at which a tranche becomes disconnected from profit or loss on the investment is referred to herein as “detachment.”